Gold loan cos shift to daily interest method

After banks, gold loan companies have now switched to calculation of interest on loans on a daily interest basis. Earlier, most companies followed a flat method model, which was expensive for the borrower.

| TNN | Nov 17, 2012, 06.17 AM IST

CHENNAI: After banks, gold loan companies have now switched to calculation of interest on loans on a daily interest basis. Earlier, most companies followed a flat method model, which was expensive for the borrower.

For example, if a trader pledged his jewels and took a loan of Rs 10 lakh at 18% (being the average interest rate charged by gold loan companies ) for 30 days, he would pay an interest of Rs 15,000. Under the new method, the customer would pay Rs 493 as interest daily (1,80,000/365) or Rs 14,790 monthly. While the repayment is normally three to six months, sometimes customers want to close the loan as soon as their cash flow position improves. "Sometimes, loan closures happen in just a matter of days. In such a scenario, the daily rest method is more beneficial for the borrower," a senior official from Muthoot Finance said.

More importantly, companies are looking to boost their topline growth under the new interest rate regime. "With the new method, we expect our customer base to rise by 10% by the end of the fiscal," the official from Muthoot said.

Similarly, the daily rest method is in operation for over a month across 3,000 branches of Muthoot Fincorp, a major player in the gold loan space. "We are looking to improve our volumes and will look to grow our customer base by 10%-15 % by the end of the fiscal," director, Thomas George Muthoot, Muthoot Fincorp said.

A decision to switch over to the daily rest method was taken two months ago by the gold loan association forum that consists of 20 companies. "There was a great demand from the market to switch over to the new system ," officials said.

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